Friday, June 30, 2006

The Worst We Have to Offer, and the Best


Illegal immigrants should celebrate the Fourth “by going home,” says Jared Taylor, editor of “American Renaissance,” a publication that argues against easing immigration laws.


—Wall Street Journal


David Dunn, 75, and his older brother were raised by their mother, a nurse, in a single-parent home in the Flatbush section of Brooklyn. Because Mr. Dunn received crucial help on his educational journey, he felt like he wanted to help others as well…. He read about Brother Brian Carty…of the De La Salle Academy—a middle school kids for lower-income households… Brother Carty referred him to SSP.

Wall Streeter Peter Flanagan founded SSP [Student Sponsor Partners] in 1986 with the idea of providing a high-quality education…to kids who don’t qualify for the scholarships that target academic stars. Mr. Dunn’s latest commitment brings his total SSP pledges to more than $6 million. To date, Mr.Dunn has helped more than 100 kids graduate private high school by paying their tuitions and nearly all—about 96%—have gone on to collage.

—Wall Street Journal


I don’t know Jared Taylor—the “go home” immigrant basher quoted above (from a long and, ultimately, affirming article about immigrants in America, called “Torn on the Fourth of July”).

But I'd guess he's never waited on tables or painted houses or cut lawns or built stone walls for a living—because that is the work of many of the immigrants he’d like to send back to where they presumably belong.

And I’d bet he doesn’t own a restaurant—after all, as Chef Anthony Bourdain says (in his very funny, eye-opening book, “Kitchen Confidential”), a good chef should speak Spanish, because that’s the native language of most kitchens.

And I’d be surprised if Mr. Taylor has relatives who were born south of the border, as was my cousin’s wife.

Precisely what makes my cousin’s wife different than my grandfather’s wife—born in Sweden but not forced to “go home” by Mr. Taylor’s forebears—is hardly clear to me, except that one has brown skin, while my grandmother had white skin. (The hypocrisy of the anti-immigration mob is not a subtle thing.)

Now, as I said, I don’t know Mr. Taylor, who seems to me to be about the worst we have to offer.

But I don’t know David Dunn, either—yet, whereas Mr. Taylor wants to send the rabble home, Mr. Dunn, as described in a brief but powerful story in the same section of today’s Journal as “Torn on the Fourth of July,” has embraced the rabble by offering their underprivileged children a good education.

And Mr. Dunn did this, according to the Journal, with the help of Peter Flanagan.

Unlike Mr. Taylor or Mr. Dunn, I do know Peter Flanagan. Descended from immigrants, as we all in one way or another have been, Peter has given more of himself to the cause of helping inner city school children get a chance to learn—and, therefore, succeed—than any person I know.

Peter happens to be among the best we have to offer—and David Dunn ranks right up there with him. We're lucky their forebears decided to come to America.


And luckier still they were allowed to stay.



Jeff Matthews
I Am Not Making This Up


© 2006 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.


Wednesday, June 28, 2006

Even Worse than the Dilbert-Dinosaurs


Well at least Microsoft got rid of the dinosaur-people.

You may recall that hallucinogenic Microsoft Office ad campaign involving office workers wearing dinosaur heads. If you don’t, I am not making this up: somebody at Microsoft decided it would be a good idea to run expensive color ads in major newspapers showing men and women in Dilbert-style office situations wearing dinosaur heads and fretting about problems they have encountered owing to the fact that they haven’t upgraded to the latest version of Microsoft Office.

Sample copy:

Dinosaur 1: “Where’s Dave?”
Dinosaur 2: “Dave’s in Cincinnati.”

Dinosaur 1: “But Dave was supposed to compile the data.”

A third dinosaur sticks his head into the conference room. “Five minutes to showtime guys. Good luck.”

When the female boss dinosaur walks in and says “OK, let’s get started,” the Dilbert-Dinosaurs think, in little cartoon bubbles, “We’re doomed.”

The basic lesson we are supposed to learn, as I see it, is that the dinosaurs died off from the face of the earth millions of years ago in a violent cataclysm of sudden death when they refused to shell out hundreds of dollars each for a buggy, late-to-market, over-engineered Microsoft product.

And now it appears that the same advertising agency which created the Dilbert-Dinosaur campaign has come up with an even better way to drive away Microsoft customers.

“SHE FOUND YOUR FURNITURE AD ON GOOGLE,” reads the headline in yesterday’s full-page color ad, above a picture of a satisfied looking little girl leaning on a large doll-house.

My first thought was, “I didn’t know Google was taking out expensive, full-page color ads just to tout their search engine.” My second thought was, “Business must be tough for Google.”

However, in cute green type below the huge headline is copy which clarifies that this is not a Google ad—it is a Microsoft ad for “Microsoft adCenter, a new search marketing engine," which "offers a customer conversion rate that is 57% higher than Google and 48% higher than Yahoo!”

The girl with the dollhouse, we are led to believe, is a typical Google search customer, who never actually intends to buy when she—in the parlance of search—clicks through the ads that appear alongside her searches.

But I suspect most people will not get to the cute green copy. They’ll see the headline and they’ll think, as I did, that Google must be the way to sell any kind of furniture, even if it's for your dollhouse.

The old saw goes that any publicity—even negative publicity—is good. With Microsoft putting up headlines like that, I suspect for Google it’s even better.





Jeff Matthews
I Am Not Making This Up


© 2006 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

Saturday, June 24, 2006

All the So-Called News That’s Fit to Print


S.E.C. Is Reported to Be Examining a Big Hedge Fund

That was the dramatic headline atop an above-the-fold article in yesterday’s New York Times.

Being familiar with the hedge fund world in general, and the hedge fund supposedly being investigated in particular, I immediately zeroed in on the article, which started off getting right to the point:

One of the nation's most prominent hedge funds… is under investigation by the Securities and Exchange Commission for possible insider trading, according to government officials briefed on the case.


Now, the motto of the New York Times is, as its declining base of aging readers knows, “All the News That’s Fit to Print.”

And until the media monopoly of big-city papers like the Times was broken by the advent of the Internet, it did seem that if a story wasn’t carried in the Times, it wasn’t much of a story.

While there have been many take-offs on the Times’ high-browed, self-important, Father Knows Best motto over the years, my personal favorite stems from college days, when I was given a copy of a hilarious and subversive student paper from Rensselaer Polytechnic Institute. Its motto: “All the News That Sh-ts, We Print.”

And the deeper I read into Friday's breathless hedge-fund-being-investigated article, the more I thought it fit the old RPI motto than the Times’ own version.

For starters, the second paragraph tantalized the prospect of many examples of possibly heinous behavior, as follows:

The S.E.C. declined to confirm or deny that it was investigating [the fund]. But a lawyer who once led the agency's investigation has told Congress that the fund's trading had repeatedly aroused suspicion among stock exchange officials, prompting them on 18 occasions to refer cases to the S.E.C. for further investigation, records show.

But the juicy details of those cases were not forthcoming:

Mr. Aguirre's letter to Congress did not specifically identify any of the trades. But according to government officials, the trades Mr. Aguirre said had made the fund $18 million involved one of the biggest mergers in 2001: the General Electric Capital Corporation’s $5.25 billion buyout of Heller Financial…

Now, $18 million sounds like a lot of money—and for a lot of hedge funds it might be—but given that the fund in question had, we are told, $7 billion in assets at the time of the Heller deal….then the Heller-related profits amounted to something in the range of two-tenths of one per cent of the value of the fund.

Furthermore, according to the story, the fund bought its Heller position starting a month before the deal.

Furthermore, any hedge fund or money manager with $7 billion or more in assets that trades as actively as the hedge fund in question, is, I’m betting, likely to have more than a few lucky trades, statistically speaking.

Along those lines, keep in mind the recent blockbuster disclosures from the Wall Street Journal regarding back-dated option grants, in which the Journal discovered that certain companies repeatedly granted its senior managers stock options at the lowest possible stock price of the year, year after year after year—with statistical probabilities that such grants were pure good luck (in the case of KLA-Tencor) as low as one in twenty million.

I’m guessing the odds that an actively managed $7 billion fund gets a few takeovers in its portfolio is not as improbable as one in twenty million.

The weak link in this story, as I read it, is that it’s based on disclosures contained in a letter written by a former SEC lawyer (who, it turns out, was fired by the SEC) to perhaps the last group of people to whom you’d ever think of writing a letter regarding a complicated financial securities issue: members of Congress.

Worse, one of those members of Congress happens to be my own Senator, Chris Dodd, whose main qualification for his job as “ranking Democrat” on the Senate Subcommittee on Securities and Investment is that he has a magnificent, Kennedy-esque head of hair and huge, somber eyebrows. Plus he is smooth and witty on the Imus show. Oh—and his father was a Senator.

(Word has it that Senator Dodd is exploring a bid for the upcoming Democratic Presidential Nomination. Given that he is from Connecticut, which is now I believe technically a wholly-owned subsidiary of the Mohegan Sun casino, I’d say the Senator has as much chance of winning the nomination as the U.S. soccer team had of winning to the World Cup.)

All the news that’s fit to print? Hardly.

More like so-called news.


Jeff Matthews
I Am Not Making This Up


© 2006 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.


Friday, June 23, 2006

Gapping Down...and Out?


Old Navy Announces Six Finalists in Nationwide Search for New Canine Mascot

Well, that’s a relief.

In a press release up which I am not making, Old Navy announces it has found six dogs, of which one will be chosen as a new mascot. Better yet, we all get to vote which dog will be the winner!

SAN FRANCISCO, June 23 /PRNewswire-FirstCall/ -- Old Navy announces the six finalists in the brand's nationwide search for a new canine mascot. The finalists have been selected by a panel of celebrity judges as possible replacements for the much-loved mutt, Magic, a canine "spokesdog" who appeared in Old Navy's advertisements in the late nineties. Now America will choose the winner -- Old Navy is asking customers to "vote for the dog they dig"

For those us who haven’t been inside an Old Navy since the last dog was around—which is most of us, judging by the chain’s recent comp store sales (negative 8%, compared with negative 8% the prior year)—this is not so much news as a head-scratching turn of events for a franchise that lost relevance long ago.

Perhaps—and this is just a suggestion—the folks at Old Navy and its parent, Gap Inc., should be focused on human customers rather than canine marketing tools in order to reverse the long-term decline in business at what once was Gap Stores’ growth engine.

What’s next—a revival of “Fall Into the Gap”?


Jeff Matthews
I Am Not Making This Up


© 2006 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

Wednesday, June 21, 2006

Al’s Revenge


Times to Sell Ads on Front of Business Section


That’s the headline in today’s New York Times, and in case you’re wondering whether the story is any more complicated or interesting than the headline…it is not.

The story itself begins as follows:


The New York Times plans to sell advertisements on the front of its Business Day section starting in two weeks, Bill Keller, the paper’s executive editor, said yesterday.

This incredibly dull news comes during the newspaper industry’s annual New York City confab in which the various newspaper chains get up in front of analysts and explain away declining subscriber counts while highlighting extensive cost-cutting measures and the fabulous growth in their internet properties.

Unfortunately, the internet side of the newspaper business is, generally, 1) insignificant, revenue-wise, and 2) not very profitable anyway. Thus something must be done to find incremental revenue, and the newspapers are pulling out all the stops.

The ads are expected to sell at a premium rate because of the prominent showcase the front of the section affords.

Stop the presses! More ads at higher rates for fewer readers!

Now, I hope my friend Al saw this story. If he did, I’m sure he’s smiling right now.

Al used to work in the newsprint business, selling the low-grade paper on which the New York Times and its ilk are printed. Newsprint is a lousy, cyclical, brutally competitive business if there ever was one, yet the newspaper chains always complained whenever things got good and the newsprint guys tried to raise prices.

Al was forever griping about the power of his newspaper customers to complain about alleged price-fixing among newsprint makers in great big front-page muckraking stories, while at the same time operating near-monopolies that could raise prices at will, giving them steady double-digit profit margins year in, year out, and cash flow to die for.

But how the mighty have fallen, thanks to Craigslist, Google, Yahoo! and the rest; and so the New York Times is left to slapping ads on the front page of a business section that fewer and fewer people are bothering to read.

If that’s the best a once-mighty near-monopoly can do to help cover the enormous fixed-cost burden of a slowly dying distribution model, it’s a sorry response to the underlying problem. Sadder still is the near-complete denial evident in paper’s placement of blame, which I am not making up:

The change comes as The Times, along with other newspapers, faces an increasingly difficult economic environment.

Beg pardon? “Difficult economic environment”? What are they smoking? Last I checked, the economy was screaming, employment booming and household net wealth at all-time highs.

It’s not the economy. Just call it “Al’s Revenge.”



Jeff Matthews
I Am Not Making This Up


© 2006 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

Monday, June 19, 2006

The Mountain Man from McKinsey


Vince: I was in the jungle—the bush we called it—for approximately nine months...

Sheldon: Nine months! That must have really been something!


Vince: It was. I saw things... They have tsetse flies down there the size of eagles.


I thought of that exchange from “The In-Laws”—the original, funny Peter Falk version, not the newer, un-funny Michael Douglas version—while reading about now-convicted former Enron President Jeff Skilling’s alleged Mountain Man adventures in this weekend's Wall Street Journal.

In "The In-Laws," Falk plays an elusive CIA agent (Vince) whose bizarre behavior and mysterious absences begin to worry the family of a nerdy dentist (Sheldon), played by Alan Arkin, whose daughter is going to marry Falk’s son.

(Among the many great lines is Falk telling a cab driver who asks about his CIA career, “Are you interested in joining? The benefits are terrific. The trick is not to get killed. That's really the key to the benefit program.”)

And what reminded me of that movie while reading the Journal story on Skilling's recent trial is when I came across the laugh-out-loud portion of the article, which begins (and I am not making this up):

To prepare for the rigors of the trial, Mr. Skilling said he wandered through the Utah wilderness for two weeks…

Now, the story itself is not strictly about Skilling’s account of roughing it in Utah—that is meant to be, I think, a compelling sub-plot of the larger story, which is what Skilling now claims did him in, as revealed right in the headline itself:

In New Interview, Skilling Says He Hurt Case by Speaking Up

In other words, what convicted Jeff Skilling, we are told, was Jeff Skilling’s big, honest mouth.

The surprise, I think, is not that Jeff Skilling is coming up with a new spin on his own conviction—he’s been all doe-eyed about the Enron collapse since Day One, claiming shock and surprise while trying to justify himself, his actions and his career, both in court and on camera ever since he left the controls and parachuted safely to the ground just as the plane was about to go into a death-roll.

No, the surprise is that this piece of so-called reporting is by no less than John Emshwiller, the Journal reporter who worked the Enron story as that company was unraveling in no small part due to Skilling’s failure to build an “asset-lite” energy empire that could withstand margin calls.

Alert Enron-watchers may recall that Emshwiller and a colleague turned that reportorial work into a book with a title that was an unwieldy and self-congratulatory as the book itself:

24 Days: How Two Wall Street Journal Reporters Uncovered the Lies that Destroyed Faith in Corporate America

Despite having that high-minded book title on his resume, Emshwiller does not, I think, distinguish himself in his new story, which attempts to remake Skilling’s downfall from being unethical in business dealings to being too ethical in his pre-trial dealings:

He [Skilling] said that a series of interviews with the Securities and Exchange Commission ended up providing prosecutors with pieces of information that they effectively used against him at the trial. "Stupid me," he said with a laugh, though he added that he still believes speaking out was the "ethical" thing to do.

In other words, ‘If I hadn’t been so darn honest,’ Skilling tells the reporter, ‘I might not be headed to jail.’

What a guy!

Yet Emshwiller swallows it hook, line and sinker—and without the least effort to cast new light on what he had, previously, called “the Lies that Destroyed Faith in Corporate America.”

Now, it is worth remembering that Skilling’s trial defense rested on the notion that no fraud, no crimes, no nothing had occurred on his watch at Enron. Enron’s collapse was instead caused by a renegade CFO and skeptical short-sellers who—how is not clear—helped destroy a company he had quit for “personal” reasons.

It is also worth remembering that while still at the controls of the jet, Skilling had so little use for skeptics of Enron’s “asset-lite” business model either from within the company or without that he lashed out at the only investment analyst on or off Wall Street who had the temerity to question Skilling on a conference call why Enron did not make balance sheets available at the time of earnings reports—by calling Richard Grubman “asshole” instead of answering Grubman's astute question about the balance sheet.


(My apologies to readers accustomed to the “clean language” provision of this blog, but I use the word itself and not a euphemism in order to make it clear precisely what Skilling said and how he meant it.)

Ask any short-seller in America who made money on Enron’s collapse why he or she shorted Enron stock in the first place, and they will probably tell you it was Skilling’s performance on that call in general and his use of that epithet in particular that caused them to begin to investigate the company. It was in fact the “tell,” as Jim Cramer’s home-gamers would call it, of a serious problem going on behind the curtain at a company which Jim Chanos had rightly been calling a ‘hedge fund in drag’ for at least year before it collapsed.

Nevertheless, Emshwiller appears quite taken with Skilling’s new-found humility and creates a sympathetic portrait, with philosophical quotes on life (“better than the alternative”); new-found perspective about jail-time (“A lot better people than I am have been in prison…”); and family (“My children were never going to see me take the Fifth…”).

But he saves the whopper for last, repeating as gospel Skilling’s far-fetched tale of wondering the Utah wilderness like a later-day Joseph Smith as part of his trial preparation:

Mr. Skilling said he wandered through the Utah wilderness for two weeks, hiking up to 30 miles a day, as part of a survival-training program.

Anyone who actually does hike—and by that I mean further than from their apartment building to the nearest Starbucks—knows the idea a former pinstripe-wearing McKinsey-trained Master-of-the-Universe spent two weeks in the Utah high desert “hiking up to 30 miles a day” is about as believable as the notion that Enron was a financially sound company that collapsed simply because a CFO did things he wasn’t supposed to do while some short-sellers blew it all out of proportion.

You live in Morgan Hill, California and work in Santa Clara? 30 miles. Live in Novato and commute to downtown San Francisco? 28 miles. Short Hills to Rockefeller Center? 26 miles. Wellesley to Boston and back to Wellesley? 30 miles.

So if you ever decide to walk from your house in Morgan Hill to your job in Santa Clara in one day—heat and soot and baking sun and all—and if you don’t shoot yourself or beg a passing SUV to run you over as a mercy killing, then you will have walked almost exactly as much as Jeff Skilling is supposed to have walked in a day while on his "survival" sabbatical.

But Emshwiller doesn’t bother to wonder how a middle-aged non-former-athlete could perform such Lance Armstrongish feats—instead, he dutifully reports the rest of Skilling’s tale of Mountain Man derring-do:

He slept on the ground, had no food for the first three days and then dined largely on whatever he could find, including insects. (He recommends caterpillars and grub worms, which "are basically pure fat.")

Three days with no food! Grubs! Caterpillars!

Which brings me back to “The In-Laws”—when Sheldon the Dentist asks Vince about the "giant tsetse flies," and Vince’s wife recalls the pictures Vince had supposedly taken of them.

Unfortunately, Vince tells Sheldon, the pictures were in his coat, and, “I had that jacket Martinized.”

I’d love to see Skilling’s pictures from his Mountain Man adventures. Especially the meals, what with caterpillars and the grubs on the menu.

I suspect, however, they got Martinized.


Jeff Matthews
I Am Not Making This Up


© 2006 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.


Friday, June 16, 2006

Helpful Hint to the Greens: They Don’t Make Trees at BP


BP’s Accidents Put Its Celebrated CEO On the Hot Seat

So reads today’s Wall Street Journal above a story about environmentally-unfriendly accidents at BP.

For those unfamiliar with it, BP has been transformed from a stodgy old oil and gas company by its impatient and intense CEO, John Browne, into a world energy powerhouse through acquisition and big bets on new drilling frontiers while—according to the Journal—“embracing the green movement years before it was cool in the executive suite.”

Call me a cynic, but as far as I can tell, Lord Browne’s “embracing the green movement” involved placing cheery ads about the company's environment awareness in the Wall Street Journal and the New York Times while replacing the old BP gas station signs with cheery new gas station signs that have a brightly colored green-and-yellow sort of sunny logo implying ecological enlightenment.

Otherwise, those gas stations appear to operate pretty much the same way they always did, by which I mean dispensing volatile fuels for combustion engines which are destroying the atmosphere of the planet.

Still, it seems the greens were so taken with Lord Browne’s slick marketing campaign and sunny new gas station signs that “Vanity Fair featured him in its recent environmental issue alongside such green darlings as Al Gore and Julia Roberts.”

Now, the Fate of the Earth got a lot of press recently when science genius Stephen Hawking told an audience in Hong Kong that earthlings better start visiting other planets near us, and soon, in order to escape ecological devastation and other possible disasters that we have already inflicted on ourselves or will be inflicted upon us.

And while I’d like to think a sudden call to action will save us from the worst, I happen to think we’ve already gone beyond the point of no return as far as global warming goes—ethanol initiatives or no ethanol initiatives—and I can’t imagine what the greens are thinking when they make the CEO of BP their corporate hero.

I have news for the greens at Vanity Fair: the “P” in “BP” stands for “Petroleum.”

BP’s goal in life—its entire reason for existing—is to extract crude oil from wells drilled in environmentally irreplaceable areas such as northern Alaska and the Gulf of Mexico, transport it via oil-leaking pipelines or water-polluting tankers to pollutant-emitting refineries which operate 24/7 distilling the crude via energy-intensive, atmosphere-warming processes into a range of products that either permanently scar the land (asphalt), pollute the air (diesel, kerosene, gasoline) or destroy the atmosphere (solvents).

And to do all this in such a way that British PETROLEUM shareholders make money.

Now, it happens that today’s paper also contains a full page ad from Lord Browne’s sunny, green marketing campaign with this bold headline:

Our plans for biofuels are growing.

The copy boasts of plans “to invest $500 million over the next 10 years to create the Energy Bioscience Institute, the world’s first integrated research center dedicating to applying biotechnology to the energy industry.”

$500 million sounds like a lot of money. Spread out over ten years, however, it becomes a rounding error, or perhaps an option grant for the CEO, at $50 million a year for a company that generated $32 billion in pre-tax income last year.

If the greens truly believe that, by putting up nice bright signs with green flowery buds on gas stations dispensing volatile fuels to feed combustible engines that have probably already rendered the planet fatally wounded an oil company can become some sort of environmentally “friendly” business, then we are in even worse trouble than anybody—including Stephen Hawking—could imagine.


Jeff Matthews
I Am Not Making This Up


© 2006 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

Wednesday, June 14, 2006

The Pits


When I’m stuck in traffic anywhere in the vicinity of New York, I call Mike.

Mike is the busiest real estate lawyer I’ve ever known. He handles five to six closings a day in the New York Metropolitan area—and he basically spends 250 days a year in his car, driving from Queens to Staten Island to Rye to Brooklyn and back to Queens, handling deals.

After doing this for twenty years, Mike—to put it mildly—knows his way around The City. So, when I was stuck in traffic on the way to Yankee Stadium last night, I called Mike.

And in the course of getting from Mike the best way to get to the House That Ruth Built before the first pitch was thrown (“Where are you? Okay, listen, here’s what you do…”), I also got the low-down on Mike’s real estate business—which mainly involves multi-family, middle-to-low income homes:

“It’s the pits,” he said cheerfully. “Thank God I socked it away the last couple years.” He asked, “You remember 5, 6 years ago? Before 9/11?” I said I did. “It’s like that. I’m down to one or two closings a day.”

It seemed like only yesterday—but it was actually just last summer—that the home-builders and the real estate-happy day-traders-turned-condo-flippers had decided rising interest rates wouldn’t stop the housing boom, thanks to all the factors that people point to when they’re buying into a bubble, but which can be summed up in one sentence: “It’s different this time.”


But it isn’t. “It’s the pits.”


Jeff Matthews
I Am Not Making This Up


© 2006 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

Monday, June 12, 2006

Why Coke Isn’t It Any More


What do you get if you mix Mentos mint candies and Diet Coke?
A. a science experiment
B. a liquid mess
C. a marketing coup
For Mentos, at least, the answer is a resounding C.

Thus begins an article in today’s Wall Street Journal describing what, for any ordinary consumer products company, would be a chance to jump on the hottest trend in American popular culture—a cult web video hit—and run with it.


As the article goes on to explain:

Hundreds of amateur videos have flooded the Internet in recent months showing an oddball experiment: people dropping the quarter-size Mentos candies into bottles of Diet Coke. The combination results in a geyser of soda that shoots as high as 20 feet into the air.

"It's a funny thing to do," says Sidney Shapiro, a 26-year-old student in Israel, who posted his film on Google Video last month.

Now, the folks at Mentos—a hard-shelled chewy mint candy enormously popular in Europe—are delighted. They figure the free publicity is worth “over $10 million” in the U.S. market, which amounts to more than half the company’s actual annual marketing spend here.

And Coke? Well, the folks at Coke demonstrate precisely why Coke is no longer—as its old commercials used to claim—“It.”

Despite the fact that the amateur scientists behind the 800-plus web videos of the gushing soft drink bottles have determined that for some reason Diet Coke works best, a “Coke spokesperson” told the Journal:

“We would hope people want to drink [Diet Coke] more than try experiments with it.”

Yes, that’s right: Coke has witnessed a web-based phenomenon among precisely the target demographic that consumer products companies spend billions to reach—which might, if harnessed with an imaginative marketing campaign, help turn around a flagship product that has flat-lined in recent years…not to mention a stock price that has flat-lined since 1996.

And Coke has dismissed it out of hand.



Jeff Matthews
I Am Not Making This Up


© 2006 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

Friday, June 09, 2006

What Would Michael Corleone Say?


Mr. Cummins said in a telephone interview that all the options had been legally priced, properly reported and approved by the company’s auditors and lawyers.

—New York Times

And so it is that the CEO and Chairman of the Board of Cyberonics, a medical device maker, defends the granting of options on 150,000 shares of Cyberonics stock at a special board meeting hours after an FDA panel had approved the company’s device for treatment of chronic depression, in February 2005.

The options were priced based on the company's stock price earlier that day—$19.58 a share. Of course, given the great news from the FDA, the stock was fifteen bucks higher the next day. Hey, it is a wonderful life.

The issue of Mr. Cummins’ wonderful option grant was raised—surprisingly, perhaps, to those of us accustomed to the ‘see no evil’ qualities of fee-hungry Wall Street types—not by a disgruntled shareholder or an investigative reporter (the Wall Street Journal has led all media in breaking the issue of back-dating option abuse), but by a medical device analyst for a mainstream brokerage firm.

The analyst in question, Amit Hazan, may not have done himself any favors by saying something less than fawning about the CEO of one of the very companies on which his career depends, but at least we can say this: one of Wall Street’s Finest is calling it as he sees it.

Now, in case you’re asking yourself “Why did it take so long for an analyst to raise this issue?” let me provide a cynical answer: Wall Street’s Finest routinely practice the same sort of artificial pricing of which Mr. Cummins is accused.

The way it works is this: when a major event occurs overnight that substantially increases the expected value of a stock—such as Cyberonics’ FDA event—the analysts covering that stock are allowed to upgrade the stock before the market opens, and the price at which they are deemed to have upgraded the stock is, just like Mr. Cummins’ option grant, the price at which the stock previously closed. Even if the stock is going to open up, like Cyberonics, fifteen bucks when trading resumes.

In other words, they do exactly what Mr. Cummins is accused of doing.

And it wouldn't surprise me if more than one analyst upgraded shares of Cyberonics itself the morning following the FDA's action, at a price of $19.58 a share instead of the price everybody would have to pay when the stock would open for trading a few short hours later.

Now, analysts upgrading (or downgrading, in the case of a company with bad after-hours news) a stock in this way do not make money when the stock goes up or down once trading is resumed, as in the case of a CEO who gets a favorable stock option grant. But they look a heck of a lot better than they would if their upgrade (or downgrade) was priced at the same price the public would be able to buy (or sell) the stock.

In response to the analyst’s report, Mr. Cummins—as quoted above from today’s account of the dust-up in the New York Times—has resorted to what looks and sounds a lot like the defense used (unsuccessfully) by former Enron COO Jeff Skilling in his recent trial on fraud and insider trading charges.

In essence, Skilling said that since everything at Enron had been vetted by the lawyers and the auditors, not to mention the Board of Directors, there had been no crime.

As we know, it didn’t work.

Now, I have no idea how far the Cyberonics controversy will go, nor am I going to sound off here on what Mr. Cummins may or may not have done, rightly or wrongly, when it comes to his wonderful option grant.

But I’d bet dollars to donuts that one reason Wall Street’s Finest have been slow to document the systemic abuse of the options gravy train is that Wall Street’s Finest frequently resort to precisely the same type of behavior highlighted by one of their own.

As Michael Corleone said, “We’re both part of the same hypocrisy, Senator.”


Jeff Matthews
I Am Not Making This Up


© 2006 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

Tuesday, June 06, 2006

Shooting the Messenger


“Every time he opens his mouth, the market tanks.”


That’s what I kept hearing during yesterday’s market sell-off.

“He” is, of course, Ben Bernanke, the poor guy who had to follow in Alan Greenspan’s hallowed footsteps as Chairman of the Federal Reserve.

Under Bernanke, the Fed has raised interest rates precisely twice. Under Greenspan, the Fed raised rates fourteen times. But, under the twisted laws of Human Nature, Bernanke is Guilty as Charged. His crime: spoiling the party.

Now, Greenspan raised rates fourteen times because he had previously dropped them to virtually zero, triggering the greatest home-building speculation boom in the history of the country. Al figured—and with his reputation in Washington, who was going to argue?—the Fed could gently deflate the Greenspan Housing Bubble in a way that everybody would win.

But Bubble aftermaths are never pretty.

Just look at the last one. It occurred only five years ago, when Greenspan himself tried likewise to gently deflate the greatest new-era business speculation boom in the history of the country—the Greenspan Internet Bubble—and triggered a recession.

So, who’s the villain here? A guy who tells the world inflation is running a little high and maybe rates aren’t necessarily going down any time soon?

Or his predecessor, whose twenty years in control led directly to $70+ oil, $300+ copper and $600+ gold?


Now, I’m not a Greenspan-is-Satan Conspiracy Theorist, although I have friends who are entirely convinced that “Easy Al,” the Fed and various “Powers that Be” have cynically manipulated markets in everything from U.S. stocks to U.S. Dollars to Japanese bonds and Saudi oil policy for their personal and political gain, for the last decade at least.

(I’ll never understand why, if the Fed can do whatever it wants, Saudi Light isn't at $2.00 a barrel instead of $72 and the Dow isn’t at 110,000 instead of sloshing around 11,000?)

As far as the economy, Fed policy, the Dollar and interest rates are concerned, ‘it is what it is’ and, as investors, we have to deal with the facts as they are, not as we might wish them.

And this Benanke-bashing seems like plain old messenger-shooting, the kind practiced by insecure CEOs who blame their stock price declines on short-sellers, and voters who say they want “plain talk” but then won’t vote for anybody who tells them anything like the truth about things like taxes and why they’re still paying too little for unleaded gasoline and home heating oil.

Ben’s got an impossible job: following a legend. Just ask Jeff Immelt at GE how he likes having every move he makes compared with Jack Welch, or Sam Palmisano at IBM how he likes being compared to Lou Gerstner.

Even the Great Greenspan got off to a rough start back in 1986, after he took over from the Legendary Inflation-Killing Paul Volcker. Or has everybody forgotten what happened in October of 1987?



Jeff Matthews
I Am Not Making This Up


© 2006 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

Sunday, June 04, 2006

See This Movie


It was more than a little different from other movies I’ve seen recently.

For one thing, there were only two showings that night—unlike “The DaVinci Code,” which seemed to be playing on half the screens in the cinema complex, with new showings every seven minutes.

Second, theater wasn’t at all crowded. Most of the crowd was, of course, next door, watching either “The DaVinci Code” or whatever new Vince Vaughn movie had come out last week.

Third, the movie itself—“United 93”—started on time, because there wasn’t a half hour’s worth of trailers showcasing whatever new Vince Vaughn movie is coming to a theater near us every week until the end of time.

Fourth and most unusually, the movie itself was not about making a political statement or making us feel better: it was about what happened to ordinary people on an ordinary day on the eastern seaboard of the United States of America.

“United 93” is not a movie you necessarily want to go see: you already know what happened, you already know how it ends, and you don’t particularly feel like recalling that day, especially not through the eyes of passengers preparing to die.

Furthermore, its playing time of two hours and one minute seems like a long stretch to tell a simple story: how a plane—the last of four doomed flights—came down in a field outside Shanksville, Pennsylvania at 10:03 a.m. on September 11, 2001.

But all that leaves your mind as you watch four young men speaking a foreign language arriving at Newark airport and going through security; and as you see air traffic controllers in dark rooms going about their jobs monitoring blinking coded flights on the screens before them; and as you follow flight attendants walking onto a United Airlines jet talking about the most mundane facts of their lives; and as you watch the co-pilot walking around the outside of the plane doing a visual inspection of his jet while passengers board and settle in their seats, with not a thought of what would happen to them that day going through the minds of any one of them...excepting those four young men, nervous and impatient, also taking their seats, knowing exactly what they are about to do, and what will happen to them.

This is a movie that just tells its story. It does not pander.


There are no stereotypes here (except perhaps that the man who urges his fellow passengers not to fight back but to cooperate with the hijackers has a Scandinavian or Eastern European accent): there is no plucky fight attendant who bravely confronts the hijackers or sagely comforts the passengers—the attendants are as shocked and cowed by the hijacker’s quick and sudden violence as the passengers.

There is no gallant struggle by the noble Captain—his throat is cut from behind as quickly and ignominiously as a deer.


And there is no obvious hero among the men on the plane who decide to do something after they realize they are passengers on a bomb—no Nicholas Cage or Harrison Ford going to take out the four hijackers, grab the controls and wrestle the crippled beast to a three-point landing on a highway in the Heartland of America.

When the passengers finally decide to do something, they are not resolving inner conflicts or making up for years of bad living, as in a standard Hollywood flick. In fact, before the terror begins we know almost nothing about them except their age, the way they are dressed, and how they settle in for the flight—some by opening laptops and settling into work, others going to sleep, or asking for water, or doing the crossword puzzle in the New York Times.

After the terrorists make their move by grabbing a flight attendant and holding a knife to her throat, and by senselessly stabbing a male passenger while the plane suddenly dives as the pilots are killed and the controls are taken over, we do learn something of their lives from the snatches of whispered, desperate calls on the in-flight phones to wives, office-mates, voicemail, and, in the case of the flight attendant, to a mechanic who is the only person she can reach at a United Airlines number.
But we learn nothing else about them.

Consequently, there is no one to root for, no one to cheer. These are people like any other people who get on a plane flying from Newark to San Francisco, who have settled into a routine flight and are suddenly stunned by a shockingly violent killing and the sight of a young man with a bomb strapped to his waist and holding the wires above his head, screaming unintelligible words.

And as they make calls and reach friends and relatives who tell them about the planes that have hit the World Trade Towers and crashed into the Pentagon, they realize that are not going to land somewhere and get out of this. There is no good ending, and so they must try something.


You will probably recognize yourself, or your parents or your daughter, on that plane. And it will make you wonder how you, and they, would react.

Would you huddle in your seat and weep as you said good-bye to your wife? Would your daughter, travelling alone and terrified, call your cell phone and, getting only your voicemail, cry and tell you “I love you and goodbye”? Would you piece together what was happening in a way that nobody else comprehended—planes hitting the World Trade Towers, a plane hitting the Pentagon—and see that there was nothing to do but try to take control of this plane before it hits another target?

In the end, two hours and one minute doesn’t seem like enough.

As the screen goes black with United Flight 93 about to hit the ground, you want more. You want to see how these people’s families got on with their lives; how the air traffic controllers who watched four “heavies” drop from their screens amidst total chaos recovered from their shock and brought the other thousands of planes in the skies to land that day; how the scrambled jets of the National Guard, which could do nothing to stop the four flights from doom, patrolled empty skies in the days to come, while rumors of new attacks swept the country.

Whatever you think of the U.S. response to that day; whatever you think about Iraq, or Saddam, or WMD or anything else since 9/11—put that all away and see this movie while it is still in theaters.

It won’t change anything at all about what you think, but it will make you remember what happened that day in a way nothing else will.



Jeff Matthews
I Am Not Making This Up

© 2006 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.